Why Obamacare Can’t Lower Costs

Posted on May 9, 2014

President Obama and the Democratic Party dug themselves into a deep hole by claiming the Affordable Care Act would cut the nation’s health care costs when in fact it will raise them. It’s the gift that will keep on giving to opponents of the law.

The ACA cannot cut costs because its proponents subscribed to the wrong diagnosis of the U.S. health care crisis. They accepted the conventional wisdom that overuse of health care services is the most important reason why per capita health care costs are double those of the rest of the industrialized world, and that overuse is caused by two chronic failings among American doctors: They routinely order services patients do not need and fail to provide them with obviously beneficial preventive ones that would keep them healthy and minimize later need for medical interventions.

This diagnosis is wrong. First, underuse is far more common than overuse, even among the insured. To cite one example, 80 percent of insured Americans showing telltale symptoms, such as shortness of breath, do not see a doctor. Second, preventive services usually raise spending because they cost more to supply than they save.

Predictably enough, the mistaken “overuse” diagnosis led ACA proponents to the wrong solution, namely, that doctors can be forced or induced to stop ordering unnecessary services and provide more preventive services if they are subjected to more control by insurance companies. But the premises upon which this solution is based are also false. It is not true that the methods that the insurance industry uses to control doctors are so precise that they reduce overuse without aggravating underuse. It is also not true that the insurance industry’s methods are so inexpensive compared with the savings due to reduced overuse that, on balance, costs go down.

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The ACA’s failure to control costs might not have mattered if we were still in the 1940s or ’50s, when health care spending absorbed 4 or 5 percent of our national income. But it is 2014. Health care spending now eats up 17 percent of our income. Since the 1970s, observers across the political spectrum have agreed that America will never achieve and maintain a substantial reduction in our uninsured rate, never mind universal coverage, unless we reduce the cost of our health care system. As a candidate and as president, Barack Obama made it clear he understood that.

He made that clear, for example, in response to a question put to him by a woman at a town hall meeting in New Mexico in May 2009. The woman asked why “single payer has been taken off the plate.” Obama prefaced his response by emphasizing the importance of cost containment. “If we simply insured everyone under the current system we couldn’t afford it,” he said. “We’d go broke. We’ve gotta drive down costs.”

But in the rest of his reply, Obama made it clear he had no idea how to reduce health care spending. He said he didn’t support a single-payer system because it was “too disruptive,” and then went on to say there were other ways to cut costs that didn’t require the disruption allegedly caused by single payer. He characterized these other ways as “simple things we can do that will save money,” as if these other ways were as obvious as the nose on your face. He mentioned three examples of these “simple things”: “prevention and wellness programs,” “reimbursing doctors not just for treating people after they get sick but for helping people stay well,” and information technology to reduce “error rates” in physician decision making.

The advisers that Obama selected also revealed his belief in the overuse diagnosis and the mantra that keeping people healthy is the solution to overuse. Tom Daschle (Obama’s first choice for Health and Human Services secretary), Peter Orszag (Obama’s budget director), and Ezekiel Emanuel and Nancy-Ann DeParle (his choices for health policy advisers within the White House) were all proponents of the overuse diagnosis and the prevention mantra. Orszag, perhaps the most influential of Obama’s advisers, once said, “Nearly 30 percent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas.”

Similarly, Obama’s enthusiastic endorsement of an article in the June 1, 2009, New Yorker by Atul Gawande revealed his firm belief in the overuse diagnosis. The article, entitled “The Cost Conundrum,” alleged that “across-the-board overuse of medicine” explains America’s high health care costs. The New York Times reported that Obama brought Gawande’s article into a meeting with senators and said, “This is what we’ve got to fix.”

To sum up, although Obama accepted the dictum that universal coverage in America cannot be achieved without cost containment, his thinking about how to cut costs was defective.

Let us consider first the evidence on overuse. Overuse does exist. The overuse of antibiotics is a good example. But underuse is rampant, and not merely among the uninsured, but among the insured as well, and not just with respect to inexpensive preventive services, but to expensive procedures like heart surgery. Here are some examples of underuse taken from papers published in the peer-reviewed literature. Note that the subjects of these studies all had insurance.

Eight in 10 insured Americans who suffer serious symptoms such as unexplained loss of consciousness, unexplained bleeding, or shortness of breath from climbing a flight of stairs do not see a doctor. Six in 10 seniors insured by Medicare who have been told they need gall bladder surgery don’t get it done. Half of all insured Americans who should have an angiogram to detect blocked coronary arteries don’t get one, and one-fourth of those who do have an angiogram that indicates they have dangerously blocked arteries do not undergo surgery to treat the blockages. Half of all insured people with high blood pressure are not being treated for it.